Economist: The bile of the bosses
President Barack Obama is unloved by business and, as the midterm elections approach and voters ponder whether to hand the Senate to his Republican opponents, that could make a difference.
Business owners give Obama lower-?than-average approval ratings. Corporate lobbyists discuss his reform of health care with contempt. A Wall Street boss accuses the government of extorting fines from banks in order to win votes. A technology chief said that he is Obama’s last fan in Silicon Valley. On Oct. 8, Randall Stephenson, the head of AT&T, grumbled about a wave of damaging regulations. His audience, many of them bosses, applauded.
The puzzle is why big companies are so miffed when they are so minted. Since Obama took office in early 2009, AT&T’s earnings-per-share have risen by 56 percent and Stephenson’s annual pay by 47 percent. The S&P 500 index of shares is near a record high. American firms dominate rankings of the world’s most valuable companies for the first time in a decade and a half. Profits are at their highest level, relative to national income, since the 1960s. While the median household has seen its income stagnate, the median pay of an S&P 500 chief is up 43 percent since 2009.
Some blame this paradox on Obama’s lack of chemistry with chief executives, but you would think that the $885 billion of profits made by nonfinancial firms last year might be some compensation for his aloof bedside manner.
Another theory holds that American companies are being tortured by red tape and taxes to an unprecedented degree. The cost of regulation has risen under Obama, according to the Office of Management and Budget. Controversial new rules abound. For example, the Environmental Protection Agency wants to define the “waters of the United States” to include not only navigable rivers and lakes but also their tributaries. The National Federation of Independent Business, a lobby for small companies, howls that this could include ponds and ditches that are dry most of the year. It predicts that developing such land could require permits costing tens of thousands of dollars and long delays.
Obama’s taxing and regulating is not unprecedented, however. President Richard Nixon, a Republican, introduced price and wage controls in 1971. The federal tax code grew more than 50 percent longer under Presidents Ronald Reagan and George H.W. Bush, both Republicans, but since 2007 it has grown by only 10 percent. The aggregate tax paid by nonfinancial firms under Obama, at an annual average rate of 25 percent of pretax profits, is lower than the 32 percent paid under the Gipper. America is the fourth-easiest place in the world to do business, according to the World Bank.
Instead three structural factors explain American companies’ gilded griping at their government.
First, they are more global than ever and see greener grass abroad. If you operate in East Asia, it is hard not to envy its roads and airports. In 1988, America’s headline corporate-tax rate of 34 percent was among the lowest in the world. Today, at 35 percent, it is among the highest. Many firms are now mobile and can shift activities to friendlier places, and some are under pressure from shareholders to do so. Bosses feel that, by standing still, America is falling behind. A new survey of Harvard Business School alumni by Michael Porter and Jan Rivkin finds that 47 percent think that America is losing competitiveness.
The second factor is the polarization of American politics. Partisan rancor is higher than in the 1970s, according to a new index. The wounds of the financial crisis have yet to heal. Opinion polls suggest that Americans still hate banks and big business, and both major parties have wings that are hostile to the corporate establishment.
Polarization is bad for business. When the two parties refuse to compromise, they are unlikely to pass the long-term reforms that might boost growth. Polarization also makes extreme events more likely. In 2013, standoffs over the budget and the debt ceiling caused a government shutdown and nearly led to a cataclysmic default. All this uncertainty rattles business and deters investment. Thus, although companies are making big profits, they are not reinvesting enough. In 2013, S&P 500 firms spent more on dividends and share buybacks than on capital investment.
Porter said that, when Japanese competition was a threat in the 1980s, there was a sense of common purpose between American firms and politicians about how to respond. The lack of any unity now is “extremely scary,” he said.
While they rage at Washington, companies are making things worse by spending more than ever to influence politics. Spending by business on lobbying and campaigning so far in 2013-2014 has exceeded $5 billion, according to the Center for Responsive Politics. Google is one of the biggest spenders.
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